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Spotlight on Software Payments and RoyaltiesMar-19-2021

Insight from the IBFD Asia-Pacific Team

One of the most contentious international tax issues between taxpayers and tax authorities has always been the nature of software payments. Are payments made for the purchase of “shrink-wrapped” or “off-the-shelf” software royalty payments? On 2 March 2021, the Indian Supreme Court issued its landmark decision in the case of Engineering Analysis Centre of Excellence Private Limited v. CIT and held that the amount paid for the end use of computer software under an end-user licence agreement (EULA) or for the resale of the computer software under a distribution agreement is not “royalty” under article 12 of the India-United States Income Tax Treaty (1989) (the tax treaty concerned).